Bottom Line: European joker posesthe problem for IMI

ON THE realistic assumption that IMI's computer division will part company with its parent before too long and should be ignored when assessing the group's prospects, yesterday's figures, the end of a four-year decline, were better than they looked.

Stripping out a pounds 4.5m loss at the non-core software side (which is now breaking even) and adding back a one-off pounds 1.5m hit for the sale of one of its constituent companies, sustainable profits were really pounds 76m, a 12 per cent increase.

With Continental Europe in the doldrums and the UK flat, that is testimony to IMI's cost-cutting, its continued investment and market share improvements. It also makes the more optimistic analysts' forecasts of about pounds 90m pre- tax profits this year plausible.

Those estimates assume more of the same from building products, where a pounds 30m capital expenditure programme helped IMI refiners and Yorkshire Copper Tube to swing from loss to profit and contribute to a 23 per cent profits rise.

Drinks dispensing, which maintained the momentum after last year's 25 per cent profits jump, will inject some fizz after being named Coca-Cola's supplier of choice. Titanium is expected to return to profits this year.

The joker in the pack is Continental Europe, where profits last year fell 31 per cent, wiping out a similar rise in the home market. Building products will continue to benefit from a heavy refurbishment programme in Germany, but the rest looks much more sickly.

With that caveat in mind, forecasts of pounds 84m pre-tax and earnings per share of 16.6p look realistic. A prospective p/e of 21 puts the shares, up 7p to 347p, at a 22 per cent premium to the rest of the market. Despite the considerable recovery potential in many of IMI's markets, that is asking a lot.